E-commerce sales continue to explode

E-commerce is forecast to increase from 25% of sales in 2018 to 40% of sales in 2023 but the physical store is suffering as a result says new report and survey

E-commerce is forecast to increase from 25% of sales in 2018 to 40% of sales in 2023 but the physical store is suffering as a result says new report and survey

Currently, digital sales remain a minority for retailers, with physical sales still accounting for the majority of most firms’ income, but the balance is changing at an incredibly rapid rate and within the next 10 years, the majority of all retail sales could be generated online. Just over a quarter of retailer, brand and manufacturer sales are currently coming from online sources, however, within the next five years they expect this balance to change substantially to just below 40%, a nearly 15-point swing, says eyefortransport’s new D3 2019 report. This will generate huge pressure on supply chains to shift more of their distribution towards end-customers, rather than stores, with last-mile delivery becoming a massive factor and logistical hurdle for brands.

The transition for stores can be seen in the results, with the outlook appearing to be rocky. Looking across the period 2016 to 2018, there were consistent declines in retailers reporting that they use their stores as click-and-collect locations (down from 44.9% to 28.9%), for returning returns to stock (37.7% to 30.3%) and as showrooms for e-commerce (30.4% to 25%).

There were pick-ups in usage from e-commerce returns and for making shipments from the store, up 11.3% and 4.5%, respectively. These are both support roles for e-commerce and appear more to underline the struggles of the physical store in this new age.

The overall trends appear to suggest that consumers are less interested in interacting with the physical store when making a transaction and increasingly operating entirely online with deliveries to, and returns from, their chosen addresses, rather than visiting a physical location. Brands will need to fight hard to win the customer over through convenience and reliability via the e-commerce environment and carefully consider how digital and physical interact.

“I think most of the retailers which are suffering because of this are the ones that have, or had, a presence only in the pure-play brick and mortar business,” says Himanshu Rautela, currently on sabbatical at MIT from his role as Senior Manager, Supply Chain Planning at Walmart. “I think that doesn’t provide customers the flexibility that they want to enjoy. Customers do not only want the e-commerce advantage, they also want e-commerce to be linked together with the physical distribution footprint.

“I think the brick and mortar retailers have these physical assets and they can be used in a strategic advantage. Within the US, Walmart has 90% of the US population within a 10-mile radius of a Walmart store. So, these stores can be used as a strategic asset for the company to distribute goods to the end customers and I think it’s for the same reason that Amazon has made an investment into Whole Foods, because it gives them the physical footprint to lower its last mile distribution costs.”

Gabi Weisel, Director, Global Indirect Procurement, Supply Chain, the Estée Lauder Companies, is also positive about the potential to link up brick and mortar with e-commerce: “I think the one that we are getting on board with is the omnichannel experience. We have over 400 free-standing locations in the US, many more in Europe and Asia as well and we are trying to create a distribution network that is not solely reliant on our distribution centres but actually utilises all of these free-standing stores to enhance the customer experience. You can pick up from these locations or we can ship from these locations so that we can reach these customers faster. We feel the potential is very large to drive traffic back into stores either for pick-ups or returns to the stores in some way and it is almost like a dual function – you’ve got this retail presence but you also have a mini distribution centre so it is no longer just relying on this retail piece, it has this added value and a distribution point as well.”